Conflicts of interest are more than just an ethical headache—they can be a direct liability exposure for law firms. Whether it’s representing competing clients, hiring laterals with baggage, or simply missing something during intake, a conflict can trigger serious legal and financial consequences.
And here’s what many managing partners don’t realize: Your malpractice insurance may not protect you.
In today’s fast-paced, multi-jurisdictional legal environment, conflicts have become harder to detect and more dangerous when missed. Firm leadership needs to understand where conflicts intersect with risk—and what role insurance can and can’t play.
The Real-World Cost of Conflict
When conflicts aren’t properly identified and managed, the fallout can include:
- Disqualification from representation, even mid-case
- Malpractice claims by either current or former clients
- Breach of fiduciary duty allegations
- Loss of legal fees, even if work was performed
- Ethics investigations or bar complaints
- Damage to reputation and client trust
And in large firms, a conflict for one attorney can infect the entire practice. Conflict exposure can come from something as simple as a missed intake screen or a lateral hire whose prior representations weren’t fully disclosed.
Why Malpractice Insurance May Not Fully Cover Conflict-Related Claims
Malpractice (E&O) insurance is meant to protect against allegations of professional negligence. But when a claim stems from a conflict of interest, insurers may push back, arguing:
- The claim involves a known risk. If the conflict was known (or should have been known), the insurer may say it falls outside the policy.
- The firm failed to disclose a potential claim. If a known conflict existed prior to the policy period and wasn’t disclosed in the application or renewal process, coverage could be denied.
- The claim involves intentional conduct. Breaches of fiduciary duty tied to conflicts may be excluded if they’re seen as deliberate.
Plus, some policies have specific exclusions or limitations on coverage related to:
- Dual representations
- Representation of former clients
- Imputed conflicts across the firm
It’s also common for conflict-related claims to exceed policy limits due to disqualification or lost client trust—costs that aren’t always reimbursed by insurance.
Best Practices to Reduce Conflict Risk
Insurance alone isn’t enough. Managing partners should ensure that their firms are taking proactive steps, including:
- Robust intake and conflict check systems, preferably automated and firmwide
- Consistent lateral onboarding protocols, including full disclosure of prior representations
- Regular training on conflict rules, including ABA Model Rule 1.7 and state-specific variations
- Clear client engagement letters with conflict waivers when appropriate
- Frequent auditing of conflict management practices, especially as firm size and scope grow
Don’t overlook emerging risks like business conflicts (competing interests in non-legal ventures), or positional conflicts (taking legal stances in one matter that contradict another).
Aligning Your Insurance with Conflict Risk
Your insurance broker should understand the nuances of legal conflict exposure. Ask about:
- How your policy defines a “claim”—does a disqualification order count?
- What your policy requires you to disclose at renewal
- How prior knowledge clauses could affect future claims
- Whether your policy includes full prior acts coverage for new hires
The right malpractice policy should work with your risk management strategy—not against it.
Concerned about conflict risk?
RiskPoint / IMA helps law firms evaluate conflict exposure and secure insurance policies that reflect the realities of modern legal practice. Contact us for a complimentary review of your coverage and conflict management protocols.
